WOCKHARDT LIMITED,,AURANGABAD vs. PR. COMMISSIONER OF INCOME-TAX -2,, AURANGABAD

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee is directed against the order dated 28-03-2019 passed by the Pr.CIT-2, Aurangabad u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2012-13. 2. Briefly stated, the facts of the case are that the assessee is engaged in manufacturing and trading of pharmaceutical products. The return was filed on 29-11-2012 declaring total income of Rs.86.68 crore. The assessment was completed u/s.143(3) of the Act on 04-05-2016 determining total income at

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Rs.109.55 crore. The ld. PCIT, on examination of the relevant

material, observed that the Assessing Officer (AO) failed to carry

out necessary inquiry and the resultant order passed was

erroneous and prejudicial to the interest of Revenue. He,

therefore, set-aside the assessment order on certain issues and

directed the AO to re-frame the assessment after proper

verification. Aggrieved thereby, the assessee has come up in

appeal before the Tribunal.

relevant material on record. The ld. PCIT invoked jurisdiction on

four counts, which we will take up in seriatim.

debts amounting to Rs.31.73 crore [including Rs.29.35 crore

pertaining to provision made for Duty Entitlement Passbook

(DEPB)] in the computation of book profit u/s.115JB of the Act.

The ld. PCIT noted that the assessee claimed deduction of the

above provision in its Profit and loss account but did not add it

back in the computation of book profit u/s.115JB of the Act. The

assessment order was silent on the point. He, ergo, held the

assessment order to be erroneous and prejudicial to the interest of

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the Revenue for want of verification by the AO. The ld. AR fairly

admitted that the AO erred in examining this issue and hence did

not press the challenge to the impugned order on this score.

assessee not adding back unascertained provision made for

doubtful debts and advances and Corporate Debt Restructuring

(CDR) recompense. The assessee claimed deduction of Rs.160

crore towards provision for CDR recompense. The ld. PCIT held

that such a deduction was not admissible and the AO did not

examine it during the course of the assessment proceedings. He,

therefore, declared the assessment order erroneous and prejudicial

to the interest of Revenue. On this issue again, the ld. AR

candidly admitted the view point of the ld. PCIT about its non-

examination by the AO leading to the assessment order becoming

amenable to revision. No challenge was pressed on this issue as

well.

6.1. The third ground for invoking the revisionary power u/s.263

is that of the AO not making disallowance u/s 40(a)(ia) of the Act

on account of non-deduction of tax at source/short deduction of

tax at source on payments covered u/s.194A, 194J and 194H. The

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Audit Report of the assessee divulged that there was non

deduction of tax at source and also short deduction of tax at

source amounting to Rs.5,39,94,141/-. As against that, the

assessee had added back only a sum of Rs.2,37,81,782/- u/s.40(a).

This, in the opinion of the ld. PCIT, resulted into allowing excess

deduction of Rs.3.02 crore. On being called upon to explain its

stand, the assessee submitted that it deducted tax at source on

Rs.2.77 crore but deposited the same belatedly on 28-11-2012.

The assessee furnished TDS challans evidencing the deposit of

TDS amounting to Rs.31,11,341/- (including interest of

Rs.3,33,358/-) pertaining to the expense claim of Rs.2.77 crore. It

was submitted that the due date for filing of return u/s.139(1) was

30-11-2012 and hence no disallowance was called for

u/s.40(a)(ia) to that extent. As regards the remaining sum of

Rs.24,32,529/-, the assessee submitted that it was in process of

collation of details. However, no further reply was submitted till

the passing of the impugned order. This led to the declaration of

the assessment order erroneous and prejudicial to the interest of

Revenue.

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6.2. On a specific query, the ld. AR submitted that the AO in his

order u/s.143(3) r.w.s. 263 has allowed deduction of expenses

amounting to Rs.2.77 crore on which tax was deposited before the

due date. The issue to this extent has, therefore, become

infructuous.

6.3. As regards the remaining amount of Rs.24,32,529/-, the ld.

AR submitted that it was a case of short deduction of tax at source

and not that of non-deduction of tax. Relying on certain

judgments including CIT Vs. S.K. Tekriwal (2014) 361 ITR 432

(Cal), the ld. AR submitted that no disallowance can be made

u/s.40(a)(ia) for short deduction of tax at source. This argument

was countered by the ld. DR who submitted that the assessee

failed to furnish any details of short deduction of tax at source

either before the ld. PCIT or at the stage of the Tribunal.

6.4. Having heard both the sides and gone through the relevant

material on record, we find that the AO in the assessment

proceedings pursuant to revisionary order has accepted the

assessee’s claim of not making any disallowance u/s.40(a)(ia) in

respect of the expenses on which deduction of tax at source was

done and payment was also made before the due date of filing

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return u/s.139(1) of the Act. To that extent, there cannot be any

reason for the assessee to be aggrieved. As regards the remaining

amount of Rs.24.32 lakh, the ld. AR submitted that it was a case

of short deduction of tax at source and not non-deduction and

hence, no disallowance could have been made u/s.40(a)(ia) of the

Act. There is no dispute on the proposition put forth on behalf of

the assessee that short deduction of tax at source did not attract

disallowance u/s.40(a)(ia) at the material time in view of the

judgment in the case of S.K. Tekriwal (supra). However, it is

apposite to mention that the Finance Act, 2012 has inserted

second proviso to section 40(a)(ia) w.e.f. 01-04-2013 providing

for making disallowance if the assessee fails to deduct whole or

any part of tax in accordance with the relevant provisions. Thus,

it is graphically overt that the ratio in S.K. Tekriwal (supra) has

been said to set at naught by means of statutory insertion. As the

assessment year under consideration is 2012-13, the newly added

proviso by the Finance Act, 2012 would not apply.

6.5. What is relevant to note from the ratio in S.K. Tekriwal

(supra) is that if the assessee deducts tax at source at a lower rate

under some misconception about the correct rate, that would not

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attract the mischief of section 40(a)(ia) of the Act. It does not

cover a case, where the assessee deducted tax at source from

some payments, while the others came to be made without any tax

deduction, with the overall impact of short deduction of tax at

source from the transactions taken as a group. This can be

understood with the help of an example, where an assessee makes

payments of commission to 10 parties and deducts tax at source

on the payments made to 3 parties at the appropriate rate without

any tax withholding on the payment to the remaining 7 parties.

That would not attract the ratio in S.K. Tekriwal (supra) to escape

the disallowance in respect of remaining 7 parties. Instantly, we

are dealing with the failure of the assessee to deduct tax at source

from Commission/brokerage paid by the assessee. On being

called upon to produce the details of the parties to whom

commission or brokerage was paid and the rate at which

deduction of tax at source was made, the assessee failed to furnish

any such detail. The same position prevailed at the level of the ld.

PCIT as well. In the absence of the assessee having produced

details of commission or brokerage, the case of short deduction of

tax at source is not established. Be that as it may, it is an admitted

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position that the assessee reported shortfall on account of lower

TDS in its Tax Audit report but the AO did not conduct any

inquiry on this point. It is a clear case of non-application of mind

by the AO which empowered the ld. PCIT to invoke jurisdiction

u/s.263 of the Act.

7.1. The last issue raised by the ld. PCIT is about the non-

deduction of tax at source on discount to Stockists/Distributors.

On perusal of record, the ld. PCIT observed that the assessee

company provided discount to Stockists/Distributors ranging

between 0 to 30% of gross sales. He held such amount as an

equivalent of commission paid to Stockists/Distributors on which

deduction of tax at source ought to have been made. In the

absence of the assessee having deducted any tax at source on such

amount, the ld. PCIT held the assessment to be erroneous and

prejudicial to the interest of Revenue.

7.2. We have heard both the sides and gone through the relevant

material on record. Admittedly, the AO did not inquire into this

issue nor discussed it in the body of the assessment order. For

invoking jurisdiction u/s.263 of the Act, it is essential to first

ingrain that the point in question could have been decided against

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the assessee, which the AO either did not examine or decided

wrongly after examination. But if the point is of such a nature that

it cannot go against the assessee, even after thorough

examination, that would not lead to classifying the assessment

order erroneous even if there is no discussion of it in the

assessment order. As such, it becomes sine qua non on the part of

the PCIT to specifically point out as to how the decision of the

AO in expressly or impliedly allowing deduction on a particular

point is erroneous.

7.3. Adverting to the factual matrix of the case, it is seen that the

assessee company sold its products to distributors at a price lower

than the Maximum Retail Price (MRP), which difference has been

opined by the ld. PCIT as Commission requiring deduction of tax

at source u/s 194H of the Act. It is simple and plain that a

manufacturer would sell his goods to Stockists or Distributors at a

price below the MRP, who, in turn, will add up their margin and

then sell the products to the retailers. The MRP is the price which

is charged by a Retailer from the ultimate consumers. All the

intermediaries between the Manufacturer and ultimate consumer

are to be compensated within the overall MRP of the product.

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The assessee sold its products to Stockists obviously at a price

below the MRP, which the Stockists were to sell to Retailers and

from Retailers to ultimate consumers. The difference between the

MRP and the price sold to Stockists, by no stretch of imagination,

can be considered as commission or brokerage paid by the

assessee to its Stockists. In order to get covered u/s.194H, it is

apparent that principal and agent relation must be established. If

the transaction is done on principal-to-principal basis, there can

be no scope for payment of commission requiring deduction of

tax at source u/s.194H of the Act. Here is a case in which the

assessee sold its products to Stockists on principal-to-principal

basis, who, in turn, sold the same products to Retailers again on

principal-to-principal basis for onward sale to customers again on

principal-to-principal basis. In that view of the matter, the relation

between the assessee and its stockists cannot be described as that

of principal and agent. We, therefore, hold that the ld. PCIT was

not justified in holding the assessment order to be erroneous and

prejudicial to the interest of the Revenue on account non-

deduction of tax at source from such amount warranting any

disallowance u/s.40(a)(ia) of the Act. As there is no involvement

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of any commission payment to Stockists on this score, we hold

that the AO correctly accepted the assessee’s claim in this regard

even though impliedly. The impugned order is overturned on this

score.

sustainable on three out of four counts as taken note of by him,

the impugned order on an overall basis cannot be declared as

unlawful. It is, therefore, held that the ld. PCIT was justified in

invoking his revisionary power u/s.263 of the Act on the three

points as discussed supra.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 22nd April, 2022 Satish

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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to: 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; 3. The CIT concerned िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “B” / 4. DR ‘B’, ITAT, Pune 5. गाड� फाईल / Guard file

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 21-04-2022 Sr.PS 2. Draft placed before author 22-04-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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